The Partial Profit Predicament

Here's a new take on an old dilemma for traders.

When there are gains on the table, one of the biggest questions for traders is whether or not to cash out on half of their contracts, and take partial profits while leaving some skin in the game. The answer to that is simple but it depends on your outlook for the trade. I give you ny take in this video.

Video Transcript

We don’t normally do that for SlingShot Trader, and there are a number of reasons as to why we don’t. Most of it is that it just leads to a lot of inconsistency in your trading. We trade such short-term positions [anywhere from a few days to a few weeks] that it doesn’t help us a whole lot by introducing that inconsistency.

Now, having said that, however, I do know some traders who will do the same thing every time. I suppose on that condition, it’s probably OK. We have done it a couple of times where we’ll only sell half of the position or something like that, and let the other half ride, but it is pretty rare.

The other thing that we’re always worried about is driving trading costs. Costs are one of the few things that we can actually control, so, as a result, we always tend to recommend that we control it as much as we possibly can, which means trading as infrequently as possible.

If you look at the long term of does it really give you an advantage or not, I think the evidence is a little wishy-washy. If I’m going to hold on to at least half the position after I maybe should have sold or would have normally sold, the question I would want to be able to answer yes to is: Would I open this as a brand new trade today?

If the answer to that is yes, then sure; keep half of it. Why not keep all of it? But if the answer to that is no, then why would we hold it? Because every day you hold, you are making a trade. You are making a decision about that to maintain that exposure.

So, it’s a really good question but that’s most of the reason why we don’t do it.

Investor Place advisors John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next trade and get 1 free month today by clicking here.

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